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11 Aug 2016

Financial Connectivity is Key

China’s Belt and Road Initiative requires a large range of financial services to launch infrastructure and development projects along the maritime and land routes across 65 countries. Laura Cha chairs Hong Kong’s Financial Services Development Council, set up to promote the development of the city’s financial services industry.

How can Hong Kong’s financial services industry contribute to the Belt and Road Initiative? The Belt and Road Initiative is a huge opportunity for Hong Kong to take forward its financial services industry and to expand our financial market. Hong Kong can provide professional and financial services. We can assist enterprises to invest in countries along the Belt and Road routes and use Hong Kong as a platform to raise funds, to issue bonds or to launch initial public offerings (IPOs), where Hong Kong is already a world leader. We can be a natural market-maker for countries along the Belt and Road. The large concentration of world-class international financial institutions and professionals in Hong Kong provides an exceptional range of services when it comes to fund and asset management, loan syndication, foreign-exchange trading and international insurance. Hong Kong project financiers are skilled at advising, arranging and underwriting financing in a number of different currencies and disciplines, including renminbi bonds and Islamic bonds (sukuk).

In fact, our respect for the rule of law, our international-standard regulatory framework, all give investors the confidence to make use of Hong Kong for Belt and Road projects. Let us also not forget that Hong Kong has been rated for 22 consecutive years as the world’s freest economy by the Washington-based Heritage Foundation and we will certainly be a financial crossroad for Belt and Road financial initiatives.

Speaking during the inaugural Belt and Road Summit, held in Hong Kong in May 2016, Laura Cha, Chairman of the Hong Kong Financial Services Development Council, says Hong Kong’s status as a major IPO centre could attract more global and Chinese mainland listings

What gives Hong Kong the edge over other financial centres along the Belt and Road routes?Our financial connection with the Chinese mainland stretched way back to the early days to when we were an entrepôt, and to the more recent past – 20 years ago – when we started to let China state-owned enterprises list on our stock market. From 1993 to now, 2016, over half of the market capitalisation on the Hong Kong Stock Exchange consists of companies that are either state-owned enterprises, “red chips” or companies that have operations in China.

It’s not just our connection with the mainland that’s significant, but also our exposure to global markets. It is a combination: connectivity with the mainland and connectivity with the rest of the world. In that respect, Hong Kong offers a unique financial services interface to both.

Since the start of the mainland’s currency liberalisation, Hong Kong has been the testing ground and a hub for offshore renminbi business. The Belt and Road Initiative, in my understanding, will not necessarily be using the renminbi as the main transaction currency because there is no mandatory requirement. I am sure the Central Government would welcome the use of the renminbi along the route. But like many infrastructure arrangements in the region, the US dollar is still the main currency being used, so in that regard Hong Kong has the advantage of having the capacity of handling both.

“It’s not just our connection with the mainland that’s significant, but also our exposure to global markets. It is a combination: connectivity with the mainland and connectivity with the rest of the world. In that respect, Hong Kong offers a unique financial services interface to both.”

With the availability of excellent service support, Hong Kong has acted and continues to act as a two-way FDI hub, channeling about 50 per cent of foreign investment into the mainland and 58 per cent of the mainland’s outbound investments. In 2014, Hong Kong and the Chinese mainland were the world’s second- and third-largest source of FDI outflows respectively.

Can you explain the various funding initiatives, such as the Asian Infrastructure Investment Bank and Silk Road Fund, to support infrastructure development along the Belt and Road?The Asian Infrastructure Investment Bank (AIIB) and the Silk Road Fund were designed to be separate and distinct from the Belt and Road Initiative. The Silk Road Fund invests in projects in countries along the Silk Road, while the Belt and Road Initiative covers many more countries. The AIIB, on the other hand, will function as an investment bank, as its name suggests, in infrastructure projects in Asia, and not limited to countries along the Belt and Road.

What specific role do you see for the Financial Services Development Council (FSDC) in strengthening Hong Kong’s competitive edge as a global financial centre?The FSDC’s mission is to promote the financial services industry of Hong Kong and advise the Government on strategy to further develop Hong Kong’s financial market. Our five work streams cover: Policy Research, Mainland Opportunities, New Business, Market Development and Human Capital. So you can see that we touch every aspect of development. The Belt and Road Initiative will be an area where all five areas of work will be involved.

While it’s clear that Hong Kong stands to benefit from the Initiative in its role as integrator and connector, what do you think other economies along the Belt and Road will gain from this China-led Initiative?This is a development strategy and framework that focuses on connectivity and collaboration among countries along the routes of the Belt and Road. The Initiative may have been inaugurated by the Chinese government, but as the Chairman of the National People’s Congress Zhang Dejiang emphasised in his keynote speech at the inaugural Belt and Road Summit in May, it will be a collaborative effort for mutual benefit. This Initiative will facilitate trade, investment, infrastructure development and new industrialisation. It will promote understanding between peoples and bring about prosperity across the region. In some cases, the Initiative also parallels some countries’ policy goals strategic development. The Belt and Road Initiative poses an attractive vision of countries working together in pursuit of mutually beneficial cooperation.

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